We recently started a series called “Penny Stock of the Day”. These ideas are geared towards traders with an extremely high risk appetite.
Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.
Penny Stock of the Day: ADC Therapeutics SA (NYSE: ADCT)
Today’s penny stock pick is the commercial-stage biotechnology company, ADC Therapeutics SA (NYSE: ADCT).
ADC Therapeutics SA develops antibody drug conjugates (ADC) for patients suffering from hematological malignancies and solid tumors. Its flagship product ZYNLONTA is in Phase II clinical trial for the treatment of relapsed or refractory diffuse large B-cell lymphoma (DLBCL) and follicular lymphoma; and LOTIS-7, a Phase Ib clinical trial for the treatment of relapsed or refractory B-cell lineage non-hodgkin lymphoma (B-NHL).
The company is also developing camidanlumab tesirine, an ADC composed of a monoclonal antibody that binds to CD25 conjugated to a PBDdimer toxin, as well as in Phase II clinical trial in relapsed or refractory hodgkin lymphoma.
In addition, it develops ADCT-602, which is in Phase I/II clinical trial for treatment of acute lymphoblastic leukemia; ADCT-601 that are in Phase Ia clinical trial for treatment of various solid tumors and hematological malignancies; and ADCT-212, a second-generation PBD-based ADC targeting prostate-specific membrane antigen (PSMA), including ADCT-701 and ADCT-901 for the treatment of solid tumors.
Website: https://www.adctherapeutics.com
Latest 10-k report: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001771910/db5b141f-a029-45d3-a89c-b8f5168c91db.pdf
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for ADCT in the last 3 months, the stock has an average price target of $5.00, which is nearly 55% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company entered into the First Amendment to the loan agreement and guaranty. This provides out-licensing arrangements for preclinical compounds, certain technologies that provide cash proceeds above $75 M.
- ADCT’s Zynlonta is currently being evaluated in the phase I LOTIS-7 study in combination with Roche’s bispecifics Columvi or Lunsumio to treat DLBCL, follicular lymphoma (FL) and marginal zone lymphoma (MZL) patients. The company is also evaluating ADCT-601, both as monotherapy and in combination with other anticancer therapies in an early-stage study for multiple solid tumors.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
ADCT – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line is currently moving higher from below the +DI and -DI lines.
#3 Price above MAs: The stock is currently above its 50-day as well as 200-day SMA, indicating that the bulls have currently gained control.
#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#5 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a pink color dotted line. This looks like a good area for the stock to move higher. The stock is also trading above its 50-week SMA, indicating that the bulls are gaining control.
ADCT – Weekly Chart
#6 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#7 MACD above Signal Line: In the weekly chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for ADCT is above the price of $3.30.
Target Prices: Our first target is $4.50. If it closes above that level, the second target price is $5.50.
Stop Loss: To limit risk, place a stop loss at $2.60. Note that the stop loss is on a closing basis.
Our target potential upside is 36% to 67%.
For a risk of $0.70, our first target reward is $1.20, and the second target reward is $2.20. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of net losses. As of December 31, 2022, the company had accumulated losses of USD 1,080.7 million.
ADCT – Consolidated Statement of Operation
- The company faces substantial competition from large pharmaceutical and biotechnology companies like AbbVie, Inc., Daiichi Sankyo Company, GlaxoSmithKline plc, Gilead Sciences, Inc., Mersana Therapeutics Inc., Sanofi S.A., Roche Holding AG, and Seagen, Inc.
- Hedge Funds Decreased Holdings by 1.6 M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- On October 10, 2023, the company received a notice from the New York Stock Exchange that it is not in compliance with the continued listing minimum price criteria set forth in Section 802.01C of the NYSE Listed Company Manual, which requires listed companies to maintain an average closing share price of at least $1.00 over a consecutive 30 trading-day period.
- Despite being a loss-making company, the executives are being paid millions as compensation.
ADCT – Executive Compensation
As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!
Happy Trading!
Trades of the Day Research Team
READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.
Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.
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